The Chronicle of Higher Education usually requires a paid subscription to read it online. (You may be able to find full-text articles on the databases your own library subscribes to anyway.) However, because they created an newsgroup-like discussion of a 2004 article, you can read this for free:
CHE: A Pension Giant's Extreme Makeover, November 5, 2004
I contributed a few items to the discussion, but it's not a very active news topic! The full thread is linked just below. I've placed the text of my longest post at the bottom of this page.
CHE Colloquy: A Pension Giant Invests in an Ad
Blitz
Betting the Company
Author: Tim Buchman
Date: 11-07-04 19:49
I regret referring to Modernista (TIAA-CREF's new advertising agency) as "edgy" in my speech at the 2003 CREF meeting. I was quoting a Slate article (1), but the ads they've produced are anything but edgy. And I hate the use of Bernstein's song, "Somewhere". I can see some 20-something "Creative" at the presentation easel, humming the first line. But he's too young to have ever seen the show. He doesn't know it's a tragedy, and Tony is dying in Maria's arms as she sings the reprise.
The TV ads (with expensive placements and lots of airplay) are as stodgy as anything we had before. I rather like a stodgy image, but if we're fighting for our corporate lives, how can you pay for a new campaign that doesn't compete with Fidelity appeals to glamor and greed? The messages on this board indicate that T-C does "look" behind the times.
Every time I read about the bicycle team, I think of "Enron Field", or "HealthSouth Stadium". And I also think of the lucrative for-profit spin-offs at Minnesota Public Radio. But the question really is, should a non-profit be funding other non-profits beyond its' specific mission?
The announcement of the new agency came as part of a tumultuous Fall, 2003 for TIAA-CREF. The first NY Times headline was "TIAA-CREF Lays Off 8% of Workers in Overhaul"(2). This was followed by the advertising review (3), and the selection of Modernista (4). A few days later, Long-Term Care policyholders learned that their product was being sold to Met Life (5). I had recently told my mother to get her LTC-insurance from TIAA-CREF over AARP, because I trusted them more!
All of this was part of Herbert Allison's overhaul, described in a CREF Annual Meeting handout titled "Decisions 2003". There were also press releases on that topic. Because it's all part of the same package, here are some significant quotes from the handout:
"For at least the next 3 years, our core market will comprise the institutions... employees and families, within: Higher Education, Private K-12, Research and other education-related not-for-profits, Hospitals. We aspire to be the unquestioned market leader in our core market." ... [to be achieved by ...] ...
"Identifying and delivering the highest-value products and services, whatever their source (with 'value' defined as the relationship between the extent to which our products and services satisfy expectations for a given risk and return profile, and the price our customers pay).
"Ensuring an economically vibrant TIAA-CREF, with unsurpassed staying power, that will be there to meet their need over the long term."
That's only a small part of the document, but it puts the advertising campaign in the context of major changes. Are they the right changes? That's a matter of opinion, and it helps to decide whether you're in favor of change, in favor of the status quo, or just plain suspicious, as I am.
There is some basis for the opinion that the past management of TIAA-CREF allowed the company to become complacent and bloated with staff. If you agree, the conclusion is inescapable that something drastic had to be done. Is our huge company in danger of ending up in a stagnant backwater of the financial services business? Is Fidelity going to eat our lunch, even though they have much higher costs than Vanguard? (Remember, to a great extent, we participants own TIAA-CREF.)
I used to work for two different non-profits that used a not-for-profit 403(b) company with the word Mutual in its' name. I rolled my money over to TIAA-CREF when I realized that the little annuity company was charging me well over 1.4% annually. (That number is over 12 years old, and I don't remember the exact value.) Although it's still active, that company could be said to have fallen into the shadows of the giants. And there's no doubt that increased size reduces costs. (Although, see (6) for an illuminating discussion of size and cost!) At that time, the CREF Stock Fund cost 0.32%, and less in some years.
I complained to CREF about opening expensive regional offices, which began with Princeton and New Haven. After all, TIAA-CREF used to be famous for its' telephone and brochure support. And Internet management of an account is even cheaper. Allison answered that when TIAA-CREF people go out to campuses, they're always asked, "Hey, Fidelity just opened an office out at the mall. When are you going to open one?". I had, I'm ashamed to say, a New York-centric view of the problem. I can't argue with those costs anymore. It's really true that a lot of investors want someone to hold their hand.
My concern about the advertising campaign is that it's vastly expensive by itself, and it's part of a plan to, in effect, bet the company on the "Decisions 2003". Note in the quotes above, "For at least the next 3 years", and "...whatever the source". To me, those phrases mean, respectively, 'if we can make it work', and 'we'll pay some big guys to sell their stuff to customers who think our offerings are wimpy'. That's my opinion, of course.
If you think we're in a position like Boeing vs. Airbus, or AT&T versus new technology, you may feel that desperate measures are called for.
But what happens if the campaign fails? I think it's possible that TIAA-CREF could ask the New York State Legislature for permission to convert to a stock corporation. That's what Blue Cross-Blue Shield has done in many states. And it's similar to the legion of mutual life insurance companies that have de-mutualized. The state legislatures are eager to convert wealthy not-for-profits (although the BC/BS scheme failed in North Carolina, for one) because it's a huge source of state cash, without taxes! In every case, competition and capital access are the reasons given, but I believe the real motivation is the proverbial "brass ring" for the corporate officers: Stock options and restricted stock awards. If you think this is far-fetched, recall that the Mutual of New York officers did well twice, once when they converted from policyholder ownership, and again when AXA bought the new stock company.
I know that sounds paranoid. But CREF has considered changing its' corporate form before. But the plan was beaten back (7), by our own interest groups. And if you think about it, Allison is just the guy to do this. He's a major Wall Street figure, and (because I've heard them speak about their hiring decision), the Board has absolute confidence in him (8). If this marketing scheme fails, he's not going to get fired. He's going to be given a mandate to "Merrilize"(9) the company.
Do not think that I find no redeeming features in Herbert Allison. There are worse guys to have in charge. Others have told me that he's much more personable and willing to debate an issue than the previous President. He's been a statesman: When Long-Term Capital collapsed, he was one of five executives called to the New York Fed's dining room to work out a solution (10). But he's also been the President of a full-service, full-cost brokerage/investment bank. In fairness, when Business Week asked him about going public, he said (11),
"Being a not-for-profit is an advantage here, and I felt that before. If you look at financial services in the U.S., I think the stars are aligning around a concept such as TIAA-CREF after many years. And I'm not changing the basic concept. It's a real advantage because of the trust it engenders in those we serve."
But I've spent most of my career at not-for-profits. He hasn't. And if the advertising campaign fails, that quote does not rule out a conversion. So I'm working on a proxy proposal to require a super-majority for a change in the form of business.
Timothy Buchman
Participant at Amherst College, Lincoln Center, and NY City Center Theater.
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